Incident: The company disclosed its report for the third quarter of 2023. In the first three quarters, it achieved operating income of 2,382 million yuan, an increase of 134.62%; net profit to mother was 157 million yuan, an increase of 130.52% year on year; after deducting non-net profit of 151 million yuan, an increase of 129.11% year on year. Comments on this are as follows:

The results in cost reduction and efficiency were remarkable, and the performance was outstanding. Project execution and settlement were good in the first three quarters, leading to a year-on-year increase in revenue of 134.62%. Combined with the strengthening of cost and expense control, the company's performance was outstanding, with an increase of 130.52%. Among them, Q3 achieved operating income of 1,036 billion yuan, an increase of 145.29%; net profit to mother of 694.51 million yuan, an increase of 109.42% year on year; after deducting non-net profit of 67.734,800 yuan, an increase of 90.65% year on year. 1) Gross margin decreased 4.24pct year over year. The company's gross margin/net margin for the first three quarters was 15.36/ 6.58%, down 4.24/0.12pct from the previous year, respectively. We judge that this was mainly due to changes in product structure. Among them, Q3 gross margin/net margin was 15.15/ 6.71% respectively, down 8.48/1.15pct year on year, respectively, and remained stable from month to month. 2) The cost rate has been reduced significantly, and the results of cost reduction and efficiency are remarkable.

The company's net operating cash flow for the first three quarters was 230 million yuan, a year-on-year decrease of 28.95%. The cost rate for the period was 6.10%, a year-on-year decrease of 4.75pct. Among them, the sales/management (including R&D) /finance expense ratios were 0.63/5.70/ -0.23%, respectively, down 0.54/3.97/0.24pct year-on-year, respectively.

Launch an employee stock ownership plan to bind core key personnel. On September 12, the company released the first phase of the employee stock ownership plan (draft). The participants in this plan are the core personnel of the company and do not involve the company's directors (including independent directors), supervisors, and senior management. The total number of people participating in the employee shareholding plan is not more than 100, and the transfer company's share repurchase price is 4.76 yuan/share. The source of shares in this plan is that the company's A shares of common stock have been repurchased from the company's special repurchase account. The total number of shares is no more than 3.58 million shares, accounting for 0.80% of the company's current share capital. The company-level performance assessment requirements for this employee's shareholding plan are: based on deducted non-net profit in 2022, the growth rate of non-net profit deducted in 2023-2024 should not be less than 20/ 44%, respectively, corresponding to an average compound annual growth rate of not less than 20%.

Investment advice: Excellent performance, employee stock ownership plans boost confidence, and maintain an increase in holdings rating. The company's net profit from 2023 to 2025 is estimated to be 235 million yuan, 296 million yuan, and 372 million yuan, respectively, up 71%, 26%, and 26% year-on-year, respectively, and corresponding valuations are 17, 13, and 11 times, respectively. The company has excellent modular design and manufacturing capabilities, and has the advantages of EPFC's entire industry chain and integrated services. Most of the customer resources are internationally renowned chemical companies, with plenty of on-hand orders, obvious base location advantages, and future growth can be expected.

Risk warning: Risk of project progress falling short of expectations; risk of improving modular penetration rate falling short of expectations; risk of declining investment by overseas chemical companies in China; risk of high customer concentration; increased risk of market competition.